Dentsu Inc. H1 FY2018 Consolidated Financial Results

Size: px
Start display at page:

Download "Dentsu Inc. H1 FY2018 Consolidated Financial Results"

Transcription

1 August 9, 2018 Dentsu Inc. H1 FY2018 Consolidated Financial Results (The first half ended June 30, 2018 reported on an IFRS basis) Note: - IFRS 15 Revenue from Contracts with Customers is applied from January 1, In this material, past results are also presented on a pro-forma basis to facilitate the year-on-year comparison. - The term Gross profit is changed to Revenue less cost of sales from Q1 FY2018. Executive Summary In H1 FY2018 the Dentsu Group delivered total growth of revenue less cost of sales of 7.6% (constant currency basis) and organic growth of 4.0%. In Q2 FY2018 the Dentsu Group delivered organic growth of 5.9%; the fourth consecutive quarter of improving organic growth. In H1 FY2018, the Japan business delivered total growth of revenue less cost of sales of 4.7% and organic growth of 4.7%, in part, due to an increase in digital-related services and new business wins. The international business, Dentsu Aegis Network, delivered total growth of revenue less cost of sales of 9.7% (constant currency basis) and organic growth of 3.4%, partly driven by new business wins in H2 FY2017. Underlying operating profit declined 1.8% (constant currency basis). In Japan, although this was partially offset by planned investments in the working environment reforms, profit grew. At Dentsu Aegis Network, its profit decline reflects planned investments in global platforms and systems to increase shared services and investments to drive top line growth. FY2018 net profit guidance is revised upwards due to the expected gain on sales of shares of associates in Japan to be recorded in Q3 FY2018 and other factors. In response to the rapidly changing business environment, the Dentsu Group has begun to consider its changes in a group holding structure. Please see separate press release for further details. Financial Results for H1 FY2018 Consolidated Group (million yen) H1 FY2018 H1 FY2017* YoY change, % Constant currency basis, % Revenue 481, , Revenue less cost of sales** 445, , Statutory results operating profit 40,533 42,923 (5.6) - net profit (attributable to owners of the parent) 10,786 29,085 (62.9) - basic EPS yen yen (62.7) - Underlying results*** operating profit 60,862 61,970 (1.8) (1.8) operating margin 13.7% 15.0% (130) bps (130) bps net profit (attributable to owners of the parent) 31,592 39,382 (19.8) - basic EPS yen yen (19.3) - EBITDA**** 69,888 71,192 (1.8) - Average JPY/USD rate yen yen (3.3) - Average JPY/GBP rate yen yen 5.9-1

2 **Revenue less cost of sales is the metric by which the Group s organic growth is measured. Organic growth represents the constant currency year-on-year growth after adjusting for the effect of businesses acquired or disposed of since the beginning of the previous year. *** See page 6 for definition of underlying. **** See page 6 for definition of EBITDA. H1 FY2018 results The Dentsu Group delivered growth of revenue less cost of sales of 7.6% (constant currency basis) in H1 FY2018: o 4.7% in Japan, and 9.7% (constant currency basis) at Dentsu Aegis Network driven by acquisitions and organic growth. o Contribution amount to the increase: billion yen by organic growth, billion yen from M&As, and +2.0 billion yen from foreign exchange rates. The Group produced organic growth of 4.0% (constant currency basis) in H1 FY2018: o 4.7% in Japan, and 3.4% (constant currency basis) at Dentsu Aegis Network. The international business benefited from the strong new business wins in H2 FY2017; further impact from new business wins is expected through the remainder of FY2018. o Digital business contribution to total revenue less cost of sales reached 45.0% (H1 FY2017: 42.7%), including 23.9% in Japan (H1 FY2017:22.0%), and 60.1% at Dentsu Aegis Network (H1 FY2017: 58.3%). o International business contribution to total revenue less cost of sales reached 58.2% (H1 FY2017: 56.8%). Group underlying operating profit was 60.8 billion yen (H1 FY2017: 61.9 billion yen). o 45.5 billion yen in Japan (H1 FY2017: 45.1 billion yen), and 15.3 billion yen at Dentsu Aegis Network (H1 FY2017: 16.8 billion yen). Group underlying operating margin was 13.7% (H1 FY2017: 15.0%). o 24.4% in Japan (H1 FY2017: 25.4%), and 5.9% at Dentsu Aegis Network (H1 FY2017: 7.2%). o The decline in Japan was mainly due to planned SG&A costs related to the working environment reforms. At Dentsu Aegis Network, the operating margin reflects the planned internal investment in global platforms and systems as well as investments to drive top line growth. o The H1 FY2018 margin is aligned to our budget and is largely on track for FY2018 expectations. Underlying net profit (attributable to owners of the parent) and underlying basic EPS decreased by 19.8% and 19.3% respectively mainly due to the decline of underlying operating income and an increase of corporate taxes, etc. Interim dividend per share was determined to be 45 yen, as announced in the earnings release on February 13,

3 Toshihiro Yamamoto, President and CEO, Dentsu Inc., said: In Q2 FY2018, Dentsu Group delivered the fourth consecutive quarter of improving growth. We continue to build our own momentum in a market which remains challenging. The digital and technological revolution that our clients are facing continues to provide enormous opportunity for the Dentsu Group, and we are well positioned to take advantage of the opportunities that a fast-changing market provides. Flexible thinking and creativity remain at our core as we innovate across the marketing mix and deliver long-term value for our clients and 2018 have seen internal investment for both Dentsu in Japan and our international business, Dentsu Aegis Network. Investments have left the Group in a stronger position, more efficient and more streamlined. By leveraging our enhanced infrastructure, we intend to grow the businesses in 2019 and At the same time, for the Dentsu Group, the term marks a vital phase for the transformation of our entire Group businesses toward 2020 and beyond. This transformation is essential if we are to realize sustainable growth beyond 2021 in a rapidly changing society. In line with this direction, we today announced the next stage in the evolution of the Dentsu Group. We have begun to make and analysis of the Group s holding structure going forward*, the aim of which is to ensure that Dentsu Group s governance and organization is fit for purpose, aligned with the demands of a fast-changing business environment and rapidly evolving client needs. We remain upbeat and optimistic about the prospects for Dentsu Group in 2018 and beyond. * Please refer to the separate press release also released today. URL: 1. H1 FY2018 performance review by region Japan: H1 FY2018 Consolidated Financial Results and FY2018 Forecasts The Group s operations in Japan produced organic growth of 4.7% in the H1 FY2018. This was due, in part, to an increase in digital-related services and new business wins. Underlying operating margin in Japan declined by 100 bps to 24.4%. This was primarily due to planned investments in the working environment reforms. In Japan, a range of measures have been implemented to complete the overhaul of our in-house working environment by the end of FY2018. In Q2 FY 2018, 5.4 billion yen was allocated to working environment reforms from the FY2018 budget of 13.0 billion yen. This was used for IT, including RPA (Robotic Process Automation, automating basic processes) and ICT, office environmental reform, and personnel costs. From June 2018, Dentsu Inc. introduced Input holiday, a monthly holiday for all employees. Thanks to these efforts, we have observed a number of positive results that have increased efficiency across the business resulting in a further reduction in total work hours per employee for six months from January We will continue to build on the programs that were successful in FY2017 and introduce further additional measures in H2 FY2018. Dentsu in Japan is committed to the completion of environmental/infrastructural overhaul for future growth by accelerating the work environment reforms. 3

4 International: Dentsu Aegis Network delivered organic growth of 3.4% in H1 FY2018 and 4.5% in Q2 FY2018. Q2 FY2018 is the fourth consecutive quarter of improving growth and the best quarterly organic growth number since Q4 FY2016. All three regions posted growth in Q2 FY2018 with seven of our top 20 markets delivering double digit organic growth. Our project based businesses improved globally and showed continued momentum in the US. Although Q2 FY2018 was our easiest comparable period of the year with the comparison base becoming progressively tougher through H2 FY2018, we are in line with the FY2018 guidance, low to mid-single digit organic gross profit growth. So far in FY2018, our new business wins have tracked behind the standout performance of last year. The pitch pipeline is however healthy, 10% larger than this time last year and over 85% offensive - providing significant opportunity for the rest of the year. Our win rate in Digital, Creative and Experiential remains at the same level as last year; we derive 30% of our global revenues from creative work. The Q2 FY2018 underlying operating margin reflects the seasonality of the business and is largely on track for FY2018 expectations. Profitability is lower year-on-year due to the planned internal investment in global systems and platforms which remain on track. These investments will allow the business to operate more efficiently at scale, standardize business operations and support faster decision making. The investments fall into two main areas. Firstly, in robust common platforms and systems and increased shared services. These include people management systems and shared financial platforms. Secondly, investments to drive top line growth. These investments include our proprietary Growth Platform, the rollout of Salesforce, investments in data product development including M1 and an upgrade to NEON, an internal collaboration platform available across our entire Network. Regions In EMEA, Dentsu Aegis Network reported 3.9% organic growth in H and 4.8% in Q2 FY2018. The region continued its positive growth trajectory, although performance across the region was mixed. Russia, Spain and Italy posted stand-out performances in the quarter, all delivering double digit organic growth. France and Germany remain in negative territory. The UK posted positive growth. In the Americas, Dentsu Aegis Network reported 5.5% organic growth in H and 6.5% in Q2 FY2018. Q2 growth is the strongest result for the region for 13 quarters. Momentum remains with the business, the benefit of new business wins from H2 FY2017 will impact the third quarter. Both the US and Brazil showed continued strong performance. In the APAC region (excluding Japan), Dentsu Aegis Network reported (0.9%) organic growth in H1 FY2018 and 0.8% in Q2 FY2018. Q2 FY2018, saw the region return to growth; but we expect a number of one off factors to weigh on the region s growth in H2 FY2018. China remains in negative growth and although performance improved from the previous quarter; the market does face tough comparables in H2 FY2018. India posted double digit organic growth in the second quarter and Australia showed a strong result. Acquisitions To date in 2018, we have signed nine new acquisitions across the Americas and EMEA. The pipeline is strengthening and we remain focused on purchasing high growth, quality businesses at the right multiples. Prior year acquisitions continue to perform well. 4

5 Dentsu Aegis Network continues to accelerate its strategy through acquisitions, motivated by growing scale, geographic and capability in-fill and innovation with a focus on digital capability including data and CRM, customer experience and performance marketing. 2. Outlook & Forecasts for FY2018 full year performance Outlook for FY2018 Our performance for the H1 FY2018 was in line with the financial forecast announced on February 13, However, there were some changes to the FY2018 Consolidated Financial Forecasts*, which now reflect expected gain on sales of shares of associates in Japan to be recorded in Q3 FY2018, a recording of loss on revaluation of earnout liabilities and M&A related put option liabilities due to favorable performances in acquired overseas companies while taking into consideration the impact on corporate taxes. There was a change only at net profit (attributable to owners of the parent) in the table below from 61.6 billion yen in the initial forecasts to 79.5 billion yen in the revised forecasts. There is no change for the planned interim dividend per share. * Please refer to the separate press release also released today. URL: FY2018 Revised Forecasts (vs. FY2018 Initial Forecasts announced in February 2018) Consolidated Group (million yen) 2018 Jan-Dec Revised Forecasts 2017* Jan-Dec Actual Results YoY* change, % Constant currency basis, % 2018 Jan-Dec Initial Forecasts Revenue 1,006, , ,006,900 Revenue less cost of sales 954, , ,700 Japan 366, , ,600 International total 588, , ,100 Underlying operating profit 150, ,946 (8.5) (9.5) 150,000 Japan 72,500 88,801 (18.4) (18.4) 72,500 International total 77,500 75, ,500 Operating profit margin 15.7% 18.7% (300) bps (290) bps 15.7% Japan 19.8% 24.5% (470) bps (470) bps 19.8% International total 13.2% 14.6% (140) bps (130) bps 13.2% Underlying net profit 99, ,874 (7.5) - 99,800 Underlying basic EPS yen yen (7.2) yen Operating profit 112, ,392 (17.8) - 112,900 Net profit 79, ,478 (24.6) - 61,600 JPY/USD rate** yen yen (1.2) yen JPY/GBP rate** yen yen yen ** Estimated exchange rates adopted in FY2018 revised forecasts and FY2018 initial forecasts are based on average exchange rates in January Actual exchange rates in FY2017 are annual average exchange rates in Note: Underlying net profit, Underlying basic EPS and Net profit: Excluding attribution to non-controlling interests. - Ends 5

6 Further information Further details of these results, including all related financial statements, can be found in the Investor Relations section of the Dentsu Inc. website: Definitions of underlying and EBITDA - Underlying operating profit: KPI to measure recurring business performance which is calculated as operating profit added with amortization of M&A related intangible assets, acquisition costs, share-based compensation expenses related to acquired companies and one-off items such as gain/loss on sales and retirement of noncurrent assets and impairment loss. - Operating margin: Underlying operating profit divided by Revenue less cost of sales. - Underlying net profit (attributable to owners of the parent): KPI to measure recurring net profit attributable to owners of the parent which is calculated as net profit added with adjustment items related to operating profit, revaluation of earnout liabilities / M&A related put-option liabilities, tax-related, NCI profit-related and other one-off items. - Underlying basic EPS: EPS based on underlying net profit (attributable to owners of the parent). - EBITDA: Operating profit before depreciation, amortization and impairment losses. Reconciliation from underlying to statutory operating profit in H1 FY2018 Consolidated Group (million yen) reported on an IFRS basis H1 FY2018 H1 FY2017* Change, % Underlying operating profit 60,862 61,970 (1.8) Adjustment items: (20,329) (19,047) - Amortization of M&A related intangible assets (17,516) (16,258) Acquisition costs (523) (743) Share-based compensation expenses related to acquired companies (2,071) (1,473) One-off items (219) (573) Gain (loss) on sales and retirement of non-current assets (90) 629 Impairment loss - (689) Others (129) (513) Statutory operating profit 40,533 42,923 (5.6) 6

7 Quarterly results Consolidated Group (million yen) 2018 Apr-Jun YoY* change, % 2018 Jan-Mar YoY* change, % Revenue 239, , Revenue less cost of sales 219, , Japan 84, , International total 135, , Underlying operating profit 28, ,744 (13.3) Japan 15, ,439 (7.9) International total 13, ,309 (50.8) Operating profit margin 12.8% 60 bps 14.4% (330) bps Japan 18.0% 230 bps 29.7% (320) bps International total 9.6% (40) bps 1.9% (210) bps Underlying net profit 13,619 (13.9) 17,972 (23.7) Operating profit 18, ,393 (21.7) Net profit (1) - 10,788 (30.9) EBITDA 32, ,022 (13.1) Quarterly organic growth for the Dentsu Group, Dentsu in Japan, and Dentsu Aegis Network Dentsu Group Total Dentsu in Japan Dentsu Aegis Network Total * 2016* * 2016* * 2016* Q1 (Jan Mar) 2.1% 3.7% 4.1% 1.9% 4.3% 3.6% 2.2% 3.1% 4.5% Q2 (Apr June) 5.9% (4.6%) 10.0% 8.4% (7.6%) 13.4% 4.5% (2.7%) 7.2% H1 (Jan June) 4.0% (0.4%) 7.2% 4.7% (1.1%) 8.5% 3.4% 0.1% 6.0% Q3 (Jul Sept) - (2.1%) 3.0% - (4.8%) 0.9% - (0.2%) 5.2% Q4 (Oct Dec) - 2.8% 4.1% - 5.5% 1.4% - 1.2% 5.8% Fiscal Year - 0.1% 5.1% - (0.3%) 4.5% - 0.4% 5.7% Quarterly organic growth figures of Dentsu Aegis Network by region Dentsu Aegis Network EMEA Dentsu Aegis Network Americas Dentsu Aegis Network APAC * 2016* * 2016* * 2016* Q1 (Jan Mar) 2.7% 5.8% 10.7% 4.6% 0.6% (2.0%) (2.9%) 4.5% 5.2% Q2 (Apr June) 4.8% (0.3%) 5.0% 6.5% (4.1%) 2.4% 0.8% (3.8%) 16.8% H1 (Jan June) 3.9% 2.9% 7.6% 5.5% (2.0%) 0.3% (0.9%) (0.2%) 11.5% Q3 (Jul Sept) - 5.9% 5.0% - (2.0%) 5.4% - (5.5%) 5.3% Q4 (Oct Dec) - 1.3% 7.5% - (0.0%) 4.4% - 2.6% 5.6% Fiscal Year - 3.1% 6.9% - (1.5%) 3.1% - (0.6%) 7.9% 7

8 For additional enquiries Media Please contact Corporate Communications: Investors & analysts Please contact Investor Relations: Tokyo Shusaku Kannan: s.kannan@dentsu.co.jp Masa Okuzono: mokuzono@dentsu.co.jp London Andrew Moys: Andrew.Moys@dentsuaegis.com Kate Stewart: +44 (0) Kate.Stewart@dentsuaegis.com About the Dentsu Group Dentsu is the world s largest advertising agency brand. Led by Dentsu Inc. (Tokyo: 4324; ISIN: JP ), a company with a history of 117 years of innovation, the Dentsu Group provides a comprehensive range of clientcentric brand, integrated communications, media and digital services through its ten global network brands Carat, Dentsu, dentsu X, iprospect, Isobar, mcgarrybowen, Merkle, MKTG, Posterscope and Vizeum as well as through its specialist/multi-market brands. The Dentsu Group has a strong presence in over 145 countries and regions across five continents, and employs more than 60,000 dedicated professionals. Dentsu Aegis Network Ltd., its international business headquarters in London, oversees Dentsu s agency operations outside of Japan. The Group is also active in the production and marketing of sports and entertainment content on a global scale. 8